Unfortunately for some shareholders, the Chengdu Qinchuan IoT Technology Co.Ltd. (SHSE:688528) share price has dived 25% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 28% in that time.

Although its price has dipped substantially, there still wouldn't be many who think Chengdu Qinchuan IoT TechnologyLtd's price-to-sales (or "P/S") ratio of 3.5x is worth a mention when the median P/S in China's Electronic industry is similar at about 3.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Chengdu Qinchuan IoT TechnologyLtd's Recent Performance Look Like?

Chengdu Qinchuan IoT TechnologyLtd has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Chengdu Qinchuan IoT TechnologyLtd's to be considered reasonable.

Retrospectively, the last year delivered a decent 8.4% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 15% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 26% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's curious that Chengdu Qinchuan IoT TechnologyLtd's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Bottom Line On Chengdu Qinchuan IoT TechnologyLtd's P/S

Chengdu Qinchuan IoT TechnologyLtd's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Chengdu Qinchuan IoT TechnologyLtd's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

It is also worth noting that we have found 2 warning signs for Chengdu Qinchuan IoT TechnologyLtd (1 makes us a bit uncomfortable!) that you need to take into consideration.

If you're unsure about the strength of Chengdu Qinchuan IoT TechnologyLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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